Over the years entrepreneurship research has been unclear about indentifying the factors that contribute to success when founding and growing a new venture. Researchers have largely struggled to find the magic recipe for entrepreneurial success. However, the one thing that has emerged as a robust predictor of entrepreneurial survival and success, is a network of relationships.

How networks promote success

Research has clearly highlighted that both personal and organisational networks contribute to the success and growth of a new venture in at least five different ways:

Networks influence the breadth of ideas and technologies that a person is exposed to as they search for a new business idea.

Relationships provide people with links to funders of new ventures.

People in your network often open doors to cheap sources of supply and are very often the link to hiring talented employees.

The first few sales of most entrepreneurs will be to people they already know.

A strong network of relationships provides more flexibility in dealing with crises and contingencies when they arise.

Getting by with few resources

To make this a little more real, it is valuable to reflect on aspects of my own entrepreneurial journey; I discovered the value of relationships as I walked this road. In 2003 I decided I wanted to be master of my own destiny and escape the trappings of the corporate world – I wanted to launch a new business.

I entered the financial training industry because that is what I had been doing internally at my previous employer and I was familiar with the latest ideas, technology and concepts in corporate training. My business partner and I developed a suite of offerings and products to fill market needs that we learned about by talking to colleagues and associates in the corporate world. As we built the business we drew on a broad base of relationships to help us get up and running. A friend I had helped set up a Web design company three years earlier did all our Web and IT work free of charge. A student who had been in one of our classes did all the graphic design and we drew on family and friends to test all our products, often around the kitchen table with a bottle of wine and a take away pizza on hand.

Our first client was our previous employer; our former boss hired us to deliver some of our products in the organisation where we had worked. Our second client was introduced to us by a university friend of my business partner; he commissioned us to create a financial literacy board game for the company where he worked. Our third client came from a referral; one of our previous colleagues referred us to her husband who owned a company that had a need for training. We did not take on any outside capital; the capital to fund our first year of operations came from the sales revenue from our first three clients. As I reflect on the diary that I kept of my first 12 months in business I am amazed at how we managed to do so much with so little and it was largely because we were drawing on the people we knew to help us keep the business afloat. The bottom line is that a network of relationships is a very valuable resource when starting and growing a business. In this article we will explore what kinds of relationships are valuable in an entrepreneurial context and how to build an entrepreneurial network.

Types of relationships

It is important to recognise that not all business relationships are the same and that different kinds of relationships serve different purposes in developing an entrepreneurial venture. One way to distinguish between diverse relationships is the strength of the tie. Strong ties are deep relationships that develop over an extended period and usually take effort and energy to maintain. Weak ties are looser relationships that form as a result of relatively brief interactions with others. Both weak and strong ties serve useful purposes in an entrepreneurial venture but their purpose is distinctly different. They each take different amounts of energy and effort to maintain and entrepreneurs need to maintain a balance between strong and weak ties to give their venture the best chance of success.

Strong ties

Strong ties are important for three reasons:

Bouncing ideas for new products, services or business strategies.

Mentoring and support.

Information sharing.

Firstly, entrepreneurship is about creating something new and doing things differently. Developing new products or services is an uncertain activity. When engaging in an uncertain activity we need people we can trust with whom we can share our ideas and get honest feedback. Such a discussion is best had with someone with whom you share a good relationship – a strong tie.

Secondly, an entrepreneurial journey is a tough and lonely road and one reason that entrepreneurs fail is because they give up. They become drained and disheartened when things don’t go well or they take it personally when people don’t buy their products. It is at times like these that you need to get support and advice from someone you can trust. Thirdly, in an entrepreneurial venture, information is often a source of competitive advantage. If an entrepreneur hears about a request for tender or a new piece of technology before anyone else then they can quickly position their venture to take advantage of that situation. Really valuable information very often flows only through close relationships. Therefore strong ties are regularly a source of the most valuable incoming information in an entrepreneurial venture. Because of the depth of relationships in strong ties, they take time and effort to maintain and require reciprocation – doing for others what they do for you. It is often challenging to maintain many strong ties and successful entrepreneurs often supplement a few deep relationships with a broad base of loose relationships, or weak ties.

Weak ties

Weak ties extend the reach of an entrepreneur across a much broader base of people and provide valuable information flows for a lot less effort than strong ties require.
Weak ties, or loose connections as they are often called, serve three clear purposes:

They are often the source of information about a new sales opportunity.

They provide connections to potential employees and service providers.

They serve as a source of reputation in the market place.

Because entrepreneurial firms often work from a very low resources base, they cannot hire expensive sales people, invest in big media and marketing campaigns or use the services of a professional recruitment firm. They depend heavily on a network of loose connections to keep the business alive with word of mouth marketing and referrals, accessing free or low cost suppliers and hiring friends, or friends of friends. The key to effectively using a network of relationships as a valuable resource in developing a new business is balance. You need to maintain a few strong ties to serve as a critical support system and source of information when required, while broadening your reach with a vast number of weak ties to garner the benefits of information, referrals and leads.

Steps to build your own strong networks

If you become sold on the idea that it is valuable for you to foster a broad set of relationships as you build and grow your business, what does this mean practically? Fostering relationships is not rocket science. It requires the application of a few simple practices. Although these practices may seem obvious and uninteresting, they are incredibly powerful. Disciplined application of these practices can create huge leverage for a business owner by extracting big results for relatively little effort.Practice #1: Be honest and genuine
Valuable relationships are based on trust. Trust is forged when people are honest with each other. People you interact with will very quickly assess whether you are being fully honest with them and this will set the tone and the parameters for the rest of the relationship. If they decide early that you are dishonest or untrustworthy, you are doomed. That relationship is unlikely to be of any value in the future. If others trust you, you will probably be allowed to forge a relationship with them that may serve you well in future.Practice #2: Ask and listen
Relationships are built around connecting points. Connecting points emerge as a result of disclosure. To find connecting points with others you should ask open-ended questions that allow people to disclose something about themselves or their business. Then listen carefully to the answers they provide. Build on their answers as you follow up with another open-ended question and before you realise it you will be involved in a valuable conversation that can forge the foundation of a new connection.Practice #3: Share your story
Stories are one of the most powerful mechanisms for enabling others to remember key ideas and insights. This is why The Bible is filled with passages phrased as stories and why so many people can remember the key message from the fable “The Tortoise and the Hare”. Our minds are more able to latch onto ideas that are shared within a story and if you want people to remember who you are and what you do, tell them a story. Spend a bit of time crafting your personal and business history into an interesting and concise story. The next time someone asks you what you do, tell them your story and you will be blown away by how much more they remember. The more you tell your story, the better you will become at telling it concisely and effectively and the more people will connect with you and remember you.Practice #4: Follow up
Research has shown that a single follow up from an initial interaction can significantly change the trajectory of a relationship between two peple. Dropping someone an email or a call or sending them a thank you note after that first engagement changes peoples’ perception of the relationship and significantly increases the likelihood that the parties will interact again at a future date. If you want to benefit from the interactions you have with others, get in the habit of following up with them.Practice #5: Connect others
The value of a network moves to a new level when you are able to effectively connect others in your network with each other. People will begin to truly value their relationship with you if you are able to connect them with others in a meaningful and valuable way. To do this effectively you need to understand the needs and abilities of both parties and have a trusting relationship with both. As you begin connecting people in your network with one another, they will begin connecting you with others in their network. Over time your network of relationships will begin to multiply many times over.Practice #6: Maintain an up-to-date contact book
This piece of advice might seem absolutely obvious but I am amazed at how many business people don’t have all their contacts in one easily accessible place. A contact will only create value for your business if you can quickly call on that person at the time that you need them. Creating value from contacts is often about timing and if you cannot find a person’s contact details to call on them at the right time, the window of opportunity might pass you by. These days one can easily use technology to maintain a database of contacts and that database, if well populated, will undoubtedly serve as one of your business’s most valuable resources.

Invest in relationship assets

Relationship building in business is not a new recipe for success; it’s not a fad or some amazing new discovery. It is one of the oldest and most fundamental principles for business success. Yet it is more relevant today than it has ever been. In a world where we have access to more information than we could ever imagine and in which people are often fickle and fast, having a broad but balanced network of people you can call on and trust will be one of your business’s most critical assets. If you are serious about business then it is worth getting serious about your business relationships.

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Proven Strategies To Grow Your Start-up On A Scale Following These Guidelines

Scalability and flexibility are important properties of any business. Let’s say you’ve managed to build a successful start-up. It’s profitable and promising, but you want it to become better. The scalability of a business involves its ability to adapt for bigger workloads without losing revenue.

Even if your business is currently small and doesn’t generate huge profits, scalability can help it turn into a large enterprise. The wrong approach to developing a start-up can deprive it of an opportunity to become better.

The following strategies can help you make the start-up scalable and grow it to accommodate a larger demand.

Scaling Vs Growth

Many companies make a mistake of thinking that scaling and growing a company is the same thing. In fact, growth involves increasing revenue or the size of the company (the number of employees, offices, clients).

Constant growth requires numerous resources and may not always lead to a proportional revenue increase. In many cases, the growing number of services or products needed to boost revenue involves high costs related to the growing number of employees and equipment.

On the other hand, scaling allows you to increase the revenue without the costs involved in growth. You can handle the extra load and boost your profits while keeping the costs to a minimum.

At some point, a successful start-up needs to make a choice between growing at a constant rate and switching to the scaling business model.

Even though a single clear method for scaling your business doesn’t exist, there are some guidelines you can follow.

1. Get Ready To Be Patient

Scaling is not a quick process so you have to be patient. The overnight success story is not about you. In fact, scaling too fast usually results in unfortunate failure.

Allow yourself to spend the time to understand who your ideal customers are and how you can solve their problems in a better manner. Make sure you understand how to be confident about the new volume of your work.

Do research to find out how you can find the right resources to achieve scaling rather than growth.

2. Choose The Right Software

The lack of time and team members is a common problem for a startup looking for scaling methods. That’s why they need to try and automate as many processes as possible. This can be done with the assistance of the right software.

3. Take Advantage of Outsourcing

Since you are hoping to limit the expenses while growing the revenue, you have to find ways to spend the revenue in the right manner. The biggest mistake made by business owners who think they are choosing scaling is hiring a big team. By doing so, they turn scaling into growing.

Your best bet to avoid hiring a large team and paying large salaries while achieving your plans is to outsource. Using your resources wisely involves finding freelancers and remote employees who are willing to work for a lower pay on a one-time (or several) contract bases.

For example, you don’t need a lawyer or a computer specialist sitting in the office all day long. Why should you pay them a monthly salary?

4. Don’t Do It Alone

Even though certain team minimisation is necessary to improve your scaling efforts, don’t try to handle everything on your own. It’s important to have at least one person you can rely on to manage the business-related problems.

Conclusion

Scaling your start-up is possible as soon as you understand what scaling is in detail. You need to be careful not to start growing your business instead of scaling it in the process. Once you have all the fundamentals figured, resources managed, and the right people in place, you are ready to start.

Selling The Cape Town Lifestyle In China

GSB alumnus Grant Horsfield has built a rapidly expanding business in China that aims to provide a better lived environment – both at work and at play – and deliver a more balanced, sustainable and enjoyable lifestyle.

When Grant Horsfield moved to Shanghai, shortly after completing his MBA at the GSB in 2004, he wanted to find a product to sell to China, when the rest of the world was focused on buying from China. “I had a clear purpose,” he says, “I wanted to import something from Africa and bring it to China – I just didn’t know what it was.”

Horsfield had completed the Doing Business in China elective on the MBA programme, taught by Professor Kobus Van der Wath, which led to him accepting a job in China with Van der Wath’s consulting firm – The Beijing Axis. He also completed an exchange programme at Jiao Tong University in Shanghai. During this time, although he found China to be exciting and full of opportunity, Horsfield missed the Capetonian lifestyle – particularly the outdoor life and the interaction with nature.

He says, “that was when I realised that the product China needed was the lifestyle that we have in South Africa. I was sure that if the Chinese knew what they didn’t know, they would be living a more balanced life and be able to appreciate and relax in nature – so that was what I really wanted to import to China, the Cape Town lifestyle.

“At that point there was no concept of a weekend getaway spent relaxing in nature that we are so used to in South Africa,” Horsfield explains. This realisation kickstarted his vision for Naked – a chain of boutique eco-resorts set in natural landscapes across China.

The naked Group, which Horsfield founded in 2007, has built and now operates four luxury resorts with a further six under development. The first boutique resort, naked Home opened in Zhejiang Province in 2007, followed by naked Stables – an award-winning resort in Moganshan which offers horse riding to guests. Naked Stables is an industry pioneer in that it was the first resort in China to receive the prestigious Leadership in Energy and Environmental Design (LEED) Platinum certification – an American certification system encouraging the design of energy and resource-efficient buildings that are healthy to live in. Horsfield extended the concept of a luxurious retreat with the addition of naked Castle, a 95-room castle with two restaurants and a spa surrounded by lush forest, and naked Sail which offers a unique travel experience on a 70-foot catamaran in the Andaman Sea.

In 2015, the naked Group expanded into the co-working office space industry through naked Hub. Horsfield sees the move into office space as a natural extension of the naked brand.

“Essentially we had been inviting people to have a better lifestyle outside of work and we realised that we could do that in the work experience too,” he says. “When you build a resort, you build a space that allows people to experience a certain level of comfort and enjoy themselves, so why not do that in an office?” The naked team’s skillset in designing and building sustainable comfy resorts was easily transferred to building office spaces that people enjoy working in.

Naked Hub has seen rapid expansion, opening 50 hubs across China, Vietnam, Australia and the UK in just two and a half years. Initially based on smaller start-ups or freelancers in the gig economy, Naked Hub now caters to larger firms. “The idea of co-working space was born out of trying to make a more efficient smarter space for smaller companies but today more that 50% of our companies are multinationals,” says Horsfield.

The principles of a more balanced lifestyle and a cleaner more sustainable environment are present in all naked projects. For Horsfield, it’s all about trying to make the world a better place.

“No matter what kind of entrepreneur you are, you have to have some values that are important to you. For me, trying to change things for the better has been paramount in everything we’ve designed, and we probably have more sustainability experts on our payroll than most companies. What we do is not just about building, it’s about people, communities and how people interact in their environment.”

Commenting on what it takes to start a successful business in China, and then follow through with rapid global expansion, Horsfield says perseverance, a belief in what you want to achieve, and above all – courage – all play a role.

“You’ve got to have courage to do what looks very scary. If you don’t have a sound belief that it will work, then you just can’t do it.” He adds, laughing, “or as my mom says – I’m just too stupid to see the potential problems! But seriously, courage is what separates businesspeople from entrepreneurs – and that’s something that can’t be taught.”

Horsfield also believes strongly in what he terms AQ, or adversity quotient. “This is the mentality that allows me to overcome obstacles, the ability to hit a wall 20 times but pick myself up and keep on trying.”

Looking back on his experience of the MBA, he believes the programme’s value lies in promoting self-knowledge and reflection. He says, “each project I did allowed me to examine what I had done before and to consider how I could have done things differently. Examining my strengths and weaknesses was a huge benefit. Today I don’t hire people who have low self-awareness.”

“The other wonderful thing about the MBA was the diversity of students. We had a mixed group internationally, with people from many different cultural and work backgrounds, that was really enlightening. It also gave me a strong network of likeminded people.”

Horsfield believes his South African upbringing and his education at the GSB certainly helped him on his entrepreneurial path. He says, “wanting to do some good in the world, wanting to change things for the better, is a uniquely South African strength.”

What Are You Prepared To Lose?

Many, perhaps most entrepreneurs would like their businesses to grow — whether from ambition to create an empire or just to reduce the risks inherent in being a little business. To do so the entrepreneur has to change roles. They must move from where they can control everything, and change from working as they always have. Being human, we fear moving away from familiar routines, we find it hard to give up authority and we lie awake at night worrying if we can afford all those extra people.

When you run a small business you make all the decisions, you monitor performance of your employees, have direct contact with customers and have a small nest egg so you can still pay your people in bad months. A bigger business means higher overheads, more debtors, and additional inventory, all of which will put a strain on cash flow. You are likely to need more working capital to finance growth and may have to take a loan, which only adds to the risk.

You are also likely to have less day-to-day control over operations and will worry about whether your managers are about to commit an appalling blunder. A more insidious risk is the growing distance between you and customers as the business adds layers of sales managers, sales people, project managers, and branches.

Finding the opportunities

It’s difficult enough just to stand still in tough times, let alone grow strongly. The more difficult the competitive and economic situation becomes, the more we want to control every aspect of the business. We hesitate to fill vacancies, clamp down on expenses, get enraged when people make mistakes and push the sales team until they get nervous.

We develop a hang-in-there mentality and hope for better times. Paradoxically, tough times offer great growth opportunities. While others cut down on training and marketing, you have the opportunity to lure customers away from them with aggressive marketing and pricing. You can build a work environment that will attract the best people by offering strong customer support and good development opportunities. If you are bold, you have the opportunity to lock in the best suppliers by paying on time and signing long-term contracts while others delay payments and seek cheaper suppliers. It takes courage to do this, and you will feel the loss of security and comfort zones.

In this rapidly changing world, it may be easier to grow a business now than it has ever been. Businesses that embrace change and look for opportunities in uncertainty can scale rapidly. Disruptive technologies have changed the rules and allowed new businesses to grow to international giants. Waste — especially packaging waste — green energy, medical technology and urbanisation have all presented global opportunities for smart entrepreneurs.

Change is difficult to manage; we prefer our comfort zones, but treating change as a friend rather than a fear could give your business the growth spurt you desire.

Letting go to move forward

One of the hardest things to do as a business grows is to discard products, people and processes that have built your business to where it is today, but will be a hindrance to you as you grow. You may have a favourite product that was the essence of your start-up, but is now out of date and uncompetitive. Kill it.

There is pain in dealing with staff and suppliers who will not be able to keep up with your growth, especially those who stood by you when you needed them. I am all for loyalty, but if loyalty becomes a hindrance you must act. Be kind to them, give them their dignity rather than carrying them as a charitable favour. Change their roles, or find alternate work for them. Getting rid of encumbrances, products, people, suppliers, customers and processes is all part of what you need to do to take your business into a growth phase.